(Updates prices and adds details) SHANGHAI/BEIJING, Oct 28 (Reuters) - China’s yuan ended Thursday’s domestic trading session at the weakest level in 10 days, breaching a key threshold, pressured by heavy demand for dollars from state banks and oil firms. The onshore yuan opened at 6.3985 per dollar and finished the domestic session at 6.4006, 91 pips weaker than previous late night session. The weakness in the yuan came as major state-owned banks were spotted buying dollars in onshore spot market to push the yuan to the weaker side of the psychologically important 6.4 per dollar level, three sources said. The sources were not entirely sure if the dollar buying by state banks was on behalf of their corporate clients, given the increase in dollar demand from oil firms has also pressured the yuan. The yuan’s domestic closing price could affect the following day’s official midpoint fixing, and the spot market is only allowed to trade within a narrow band of 2% on either side of that day’s guidance rate. Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.3957 per dollar, 101 pips weaker than the previous fix of 6.3856. Other factors including renewed U.S.-China tensions and continued worries about the financial health of Chinese property developers also weighed on the yuan, currency traders said. They said market sentiment was hurt since late Wednesday afternoon after Reuters reported that some Chinese property developers had proposed extending their offshore bond maturities or undertaking a debt restructuring in a meeting with regulators, citing sources. The news suggested to some investors that those troubled developers barely had enough money to pay back their debt, a trader at a foreign bank said. The yuan was also hit by fresh signs of U.S.-China tensions. President Joe Biden told Southeast Asian nations the United States would stand with them in defending freedom of the seas and democracy and called China’s actions towards Taiwan “coercive” and a threat to peace and stability. Some traders expected the yuan to find support around the psychologically important 6.4 per dollar as Chinese government bonds are set to be included in the FTSE Russell flagship World Government Bond Index (WGBI) on Oct. 29, which should attract more foreign capital inflows and support the yuan. Meanwhile, the market was focused on the policy meetings of the Bank of Japan and the European Central Bank this week, as the monetary policy divergence between China and other major economies could affect fund flows and currency markets, traders added. In China, the central bank has been injecting 200 billion yuan into the financial system daily through open market operations this week, resulting a in a net injection of 60 billion yuan so far this month, compared with a net drain of 260 billion yuan in October 2020. “Hopes for PBOC’s board reserve requirement ratio (RRR) cut have been diminishing...,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong. “It appears that the PBOC can manage to contain the fallouts from the Evergrande crisis and a broad RRR cut is no longer needed to keep liquidity condition reasonably ample given the support from more flexible reverse repo operations.” Reporting by Shanghai and Beijing Newsroom; Editing by Ana Nicolaci da Costa and Christina Fincher